Why Vodafone may pass on Digital Dividend auction

Vodafone Hutchison Australia may not need 700MHz spectrum from next year’s Digital Dividend auction, according to spectrum experts. The number three telco, which is still deciding whether to bid, might already have enough spectrum to support its 4G expansion plans, the experts said.

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Vodafone Hutchison Australia may not need 700MHz spectrum from next year's Digital Dividend auction, according to spectrum experts. The number three telco, which is still deciding whether to bid, might already have enough spectrum to support its 4G expansion plans, the experts said.

Vodafone doesn't need to participate in the Digital Dividend auction, said Stephen Moore, managing partner of Moore Wright Associates. Moore worked for Vodafone in the early '90s. "They have both 900MHz and 1800MHz spectrum, which in combination is good enough for what they're doing," he said. "700MHz is great, but if you've got 900MHz, why do you need it?"

In late July, Hutchison CEO Bill Morrow said that Vodafone will be fine even if it does not bid for 700MHz because it already has a large amount of spectrum and could comfortably deploy 4G LTE over its 1800MHz frequencies. Vodafone plans to reach a decision in the next few months, he said.

Morrow noted that bidding would likely be too expensive with three carriers seeking 20 MHz of spectrum, when only 45MHz is available. Using existing 1800MHz spectrum could also be an advantage because that band is already used around the world for LTE, he said. The 700MHz spectrum to be provided under the Digital Dividend will require special microchips in phones, he said.

There are advantages to using 700MHz spectrum compared to the higher-frequency 1800MHz spectrum, said Doan Hoang, head of the School of Computing and Communications at University of Technology, Sydney. Coverage of 1800MHz spectrum is about half what an operator would get with 700MHz because 1800MHz has shorter wavelengths, he said. Using a lower frequency that can cover a larger area requires fewer towers and therefore reduces costs for network operators, especially in rural areas, he said.

While 700MHz has advantages over 1800MHz spectrum, it's not a "must-have item" for Vodafone, Telstra or Optus because they all have 900MHz spectrum that can provide the same benefits, Moore said. "The long-range cells for the rural areas and the good use for in-building coverage can be done" almost as well with that existing 900MHz spectrum, he said.

"There's always the balance between the reach of your cell versus the speed that you can deliver services to the people," Moore said. The 700MHz range is "either a great complement or a great competitor to the NBN in the rural areas," he said. However, "in the rural areas it only makes sense to have one network, and if you're only going to have one network, NBN is the way to go."

Telstra and Optus executives lately have signalled they're not in bad need of the 700MHz spectrum, either, but Coughlan said that appears to be "gamesmanship," an attempt to minimise the reserve price set by the government for the spectrum. The reserve price is the minimum required bid to win the spectrum. "Telstra needs it from a capacity perspective and Optus needs spectrum especially in regional areas," he said.

With 45MHz of 700MHz spectrum available, and Telstra and Optus likely seeking 20MHz each, the absence of Vodafone could reduce revenue for the government and leave 5MHz of spectrum unused. With Vodafone potentially taking a pass, the government may respond by raising the reserve price. However, such an action would further increase entry costs for the auction--one of the reasons that Vodafone may not bid in the first place.

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